Porsche showdown with VW looms next week

STUTTGART/FRANKFURT - The end game in thorny merger talks between Porsche and Volkswagen looms on July 23 when the carmakers' supervisory boards meet separately in Porsche's home town of Stuttgart.

At stake in the power struggle is who will control the automotive juggernaut set to emerge from any deal, an issue that has split the extended clan that owns Porsche.

Porsche wants to dig itself out of a debt hole and strengthen its negotiating position after its efforts to seize full control of Europe's biggest carmaker failed, leaving Porsche with a stake of nearly 51 percent.

Porsche plans to increase its capital and sell a stake to Qatar, steps that could cut net debt which has ballooned to considerably more than 10 billion euros ($14.05 billion), two sources close to Porsche told Reuters on Wednesday.

But it remained unclear whether Ferdinand Piech, a co-owner of Porsche and chairman of Volkswagen, would support the plan. He has been pushing a rival idea for VW to buy a minority stake in the Porsche group's healthy Porsche AG sports car business.

Porsche denied a magazine report that Chief Executive Wendelin Wiedeking was about to leave in the showdown with VW.

The sources close to Porsche said Qatar and the two families that control Porsche were poised to pump around 5 billion euros into the company via a capital injection, helping offset debts which have risen from 9 billion euros at the end of January.

Qatar would get voting shares in Porsche through the capital increase, while the families would receive voting shares as well as non-voting preferred shares in the company.

The capital hike plan is part of a concept drawn up by Wiedeking to untangle Porsche's debt mess. The plan includes Qatar taking over Porsche's derivative contracts that control around 20 percent of VW's voting shares, the sources said.

The total package would provide around 10 billion euros in relief for Porsche's stretched balance sheet and reduce its net debt to a manageable level, the sources said.

But Piech has expressed misgivings about letting outsiders for the first time have a say at Porsche SE, the family-owned vehicle that owns the sports car business and the VW stake.

Porsche labor leader Uwe Hueck demanded the owners keep the sports car business, citing Piech's vow to Porsche shareholders in 1993 that as long as I live Porsche will stay independent.

The Porsche and Piech families -- which control all the voting shares at Porsche SE -- have been at loggerheads for months over how to resolve the company's debt woes and the role Volkswagen would play in the whole deal.

Porsche had to abandon plans to take full control of its much larger peer as its debt mounted just as global car markets collapsed.

Porsche shares fell as much as 7.4 percent but recovered to close up 0.9 percent, lagging a 5.2 percent gain in the DJ Stoxx European car sector index .SXAP.

A source had told Reuters last week that Porsche Chairman Wolfgang Porsche called the extraordinary supervisory board meeting for July 23 to discuss a possible stake sale to Qatar worth over 5 billion euros.

Volkswagen said its supervisory board would hold an extraordinary meeting as well on July 23 in Stuttgart.